If you want to quickly launch a new online business, you may consider dropshipping. This approach involves selling products from third-party vendors, which makes it a low-cost eCommerce strategy. However, you might be wondering if dropshipping remains a lucrative business idea today.
Currently, dropshipping is one of the best ways to create an online store without the hassle of product management and order fulfillment. Still, it’s important to keep in mind that this industry is now highly competitive.
In this post, we’ll give you an overview of dropshipping, along with the advantages and disadvantages of starting this kind of business. Then, we’ll explain how profitable dropshipping is in 2022. Let’s get started!
An Introduction to Dropshipping
In a dropshipping business, you can outsource product manufacturing and shipping to a third-party supplier. Essentially, you’ll promote and sell products while relying on a dropshipper to fulfill the rest of the order.
Here are the basic steps involved in the dropshipping process:
- A customer places a new order.
- The store owner processes the order and forwards it to the supplier.
- The supplier fulfills the order, shipping the products to the customer.
In 2020, the dropshipping business was valued at $128.6 billion. By 2026, this is expected to increase to $476.1 billion. Although this growing popularity may seem enticing for eCommerce business owners, you might not know if dropshipping is a good option for you.
The Advantages of Starting a Dropshipping Business
When you’re starting an eCommerce business, there are a significant amount of startup costs involved. After you build a website, you’ll need to purchase product inventory as well as storage space and branded packaging.
Launching a dropshipping store, however, is much more affordable. You simply have to find a supplier that offers the products you want to sell.
For example, you can browse a popular dropshipping marketplace like AliExpress, which has everything from clothing to electronics:
Essentially, you’ll leave the product management and fulfillment to this third-party supplier, eliminating the costs of renting a warehouse, managing products, and shipping orders. This also means that you won’t take many financial risks. If certain products don’t sell, you won’t have to deal with extra inventory.
Plus, dropshipping is a very flexible eCommerce strategy. Whenever your customers aren’t interested in a product line, you can simply swap it out for another option.
With a bit of trial and error, you can easily discover which products your customers like best. This way, you can choose to stick with only the most profitable items. Ultimately, dropshipping can be a good introduction to eCommerce without the risks of a traditional retail store.
The Difficulties of Starting a Dropshipping Business
Although dropshipping can be a successful eCommerce strategy, there are certain difficulties that you may face in 2022. Therefore, before you start a new dropshipping business, it’s important to consider whether you want to navigate these issues.
You may be initially attracted to dropshipping because of its low startup costs, but it can be a competitive industry. First of all, you likely won’t have an exclusive partnership with your supplier(s). This means that other retailers will be able to access and sell the same exact products.
Some product categories can also be more competitive than others. For instance, in 2021, clothing dominated dropshipping stores, making up 16 percent of all products on Shopify.
If you choose to enter this niche, you’ll have to find ways to make your website stand out. Otherwise more established stores will likely prevent you from making a worthwhile profit.
Another way to avoid this problem is by choosing a unique niche. When you can sell products in an unsaturated market, you can increase your visibility and sales:
In a dropshipping business, you may also experience issues with product quality. Since your supplier will take care of manufacturing, storage, and inventory, you won’t be able to control these areas of your business. If you don’t order test samples, you may end up selling cheap, broken, or ineffective products.
Likewise, you won’t be able to manage your supply chain. If there are fulfillment delays or instances of inefficient packaging, you could receive complaints from your customers.
This is why it’s important to partner with high-quality suppliers. If you’re not careful, you risk permanently damaging your online reputation.
How Profitable Is Dropshipping in 2022?
Dropshipping can be profitable as long as you find reliable suppliers and set accurate prices in your store. However, it’s important to note that these profit margins will be less than a traditional eCommerce business.
Depending on your dropshipping niche, you can make an average profit margin of 15-20 percent. With the right pricing strategy, you can eventually earn more than 20 percent.
Here’s how you can set prices to earn more in your dropshipping business:
- Determine the minimum retail price: This should include all expenses, including wholesale price, marketing, operational costs, etc.
- Understand your audience: You’ll need to think about your customers’ purchasing behavior and the highest price they’re willing to spend.
- Research your competitors: It’s best to find other stores selling similar products so you can understand the market rate that is viable for your business.
- Set a sustainable markup rate: Determine what markup will allow you to realistically earn a profit and continual sales.
Still, even when you’re maximizing sales using the above tactics, dropshipping is not a get-rich-quick business strategy. Often, it’s necessary to purchase premium inventory from suppliers to avoid cheap products that are prevalent in other stores. This means that there will likely be a ceiling to your profit margins.
Ultimately, your income will depend on the products you choose to sell. If you can find top-selling items and market them correctly, you can significantly increase your profits.
If you’re an expert in product marketing, you may want to consider starting a dropshipping business. This can delegate expensive, time-intensive tasks like order fulfillment, product packaging, and shipping. By leaving these responsibilities to a third-party supplier, you can focus on advertising and growing your business.
Since dropshipping is a saturated market, it’s important to find niche products from high-quality suppliers. This can ensure that your store stands out and receives positive reviews. With the right vendor, you can also set sustainable prices and grow your profit margins.
Do you have any questions about how to launch a successful dropshipping business in 2022? Ask us in the comments section below!